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MECHANICS BANK REPORTS RECORD EARNINGS IN 2007

RICHMOND, CA, February 12, 2008--Mechanics Bank today announced that its 2007 earnings topped $29 million, the best year in its 103-year history, and a 9.5 % increase over 2006, when it earned $26.5 million.

Steven K. Buster, CEO of the $2.7 billion Northern California community bank, said, "Overall, we can say that 2007 was a very good year for Mechanics Bank. The Bank has made excellent progress in balancing its revenue sources by generating substantial new fee income. More fee income was generated throughout the Bank’s entire operations, including Retail Banking, Corporate Banking and Wealth Management Divisions.

Shareholders’ equity increased 8.3 % from year ago levels resulting from retained earnings. With the combination of enhanced balance sheet efficiency management and increased retained earnings, the total assets declined to $2.70 billion at 2007 year-end, compared to $2.76 billion in 2006. The resulting balance sheet mix significantly enhanced margins as assets earned higher yields and cost of funding moderately declined. For 2007, the Bank’s net interest margin widened by 21 basis points to a level of 3.95% during a time period when most other financial institutions experienced an erosion of their spreads.

"Mechanics Bank has never concentrated on absolute growth alone, but instead on building quality relationships that last for generations," said E. M. Downer III, Chairman. “This is evidenced by our stable balance sheet totals for the last several years, as we have focused on client service and more efficiently managed our resources."

By several regulatory measures, Mechanics Bank's capitalization was strong. Its total capital to risk-weighted assets ratio was 14 %; 10 % is necessary to be considered "well capitalized." Using another measurement standard, the Bank's "Tier 1" leverage ratio was 10.5 %, more than double the amount necessary to be considered “well capitalized.”

"In one of the most challenging periods in recent banking history, we feel fortunate to have a loyal base of customers who are continuing to perform well," said Mechanics Bank Vice Chair Dianne Daiss Felton. "We are not experiencing the non-performing loans that have been plaguing most of our industry and our consistent focus on sound underwriting practices and compliance has been rewarded. We ended 2007 with an exceptionally high quality loan portfolio and superior liquidity."

Mr. Buster emphasized that Mechanics Bank avoided the problems afflicting other banks by focusing on its core customers and competencies. "For the past several years, while other banks chose to deviate from their traditional business lines in order to increase revenues, Mechanics Bank deliberately chose consistency and safety over rapid expansion," Mr. Buster said. "Other banks may have experienced sharper increases in revenue during that period, but are, unfortunately, now paying the price. Meanwhile, Mechanics Bank's disciplined approach is paying off."

Mechanics Bank avoided exposure to risky subprime loans, according to Mr. Buster. "We have never provided subprime mortgages as a line of business," he said. "We have always discouraged our customers from subprime loans and we have never marketed them."

"Entering 2008, we believe we are well-positioned to benefit from market conditions in the coming year," Mr. Buster said. "We have commonly been viewed as Northern California's most trusted financial partner and will remain conservatively managed in the tradition of our century of operations."

Mechanics Bank is based in Richmond, California. The 103-year-old community bank is one of the largest independent banks headquartered in Northern California. Its 33 offices throughout the Bay Area and Sacramento offer a full range of financial solutions for businesses and individuals.

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